Drug Price Controls Proposed in Congress
Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA) have introduced legislation to impose price controls on the pharmaceutical market.
The Prescription Drug Price Relief Act would require the Secretary of Health and Human Services to compare domestic drug prices to the median of corresponding prices in Canada, France, Germany, Japan, and the United Kingdom, and it would strip the patent rights for drugs found to exceed that median price in the United States.
The bill, proposed on November 20, would remove market exclusivity from drugmakers granted by the U.S. Food and Drug Administration when a drug is approved for use.
‘Unnecessary and Counterproductive’
Matthew Glans, a senior policy analyst at The Heartland Institute, which publishes Health Care News, says price controls suppress innovation.
“Placing price caps on prescription drugs is unnecessary and counterproductive,” Glans said. “In a 2016 study, Citizens Against Government Waste found price controls would be ineffective at reducing prescription drug costs and harmful to long-term research and development. The report concluded price controls would do enormous damage all around the world.
“One important fact that lawmakers never seem to acknowledge is that a great deal of the costs created during the drug development process are due to government regulations,” Glans said. “The Pioneer Institute found from discovery to launch, drug development takes about 15 years to complete. This is significantly longer than just a short time ago. In fact, development time has increased by 145 percent since 2003.”
Markup in the Middle
The Sanders plan does nothing to address the costly process of adding drugs to health care plan formularies, as “middlemen” often add a significant markup to prices paid by consumers directly or through increased insurance premiums, Glans says.
“Supporters of price controls also ignore the fact that middlemen such as pharmacy benefit managers, not just drug companies, determine the cost of drugs,” Glans said. “These PBMs negotiate which drugs will be added to their formulary and receive substantial rebates and discounts from drug manufacturers, and they then sell the drugs to consumers at their own listed price.”
Federal Briar Patch Although pharmaceutical companies make for convenient political scapegoats, such complaints distract from the need to prune the costly government regulatory briar patch drug companies must navigate in bringing new drugs to market, Glans says.
“Blaming drug companies for high drug costs is easy,” Glans said. “It provides an unsympathetic villain for angry patients while moving attention away from the real culprit: government regulations. The high cost of regulatory compliance and the threat of lawsuits have created a disincentive to develop new drugs. Having the government threaten to take away patent protection will further stifle the creation of new, innovative drugs. Affordable drug prices won’t matter much if pharmaceutical companies stop producing new products.
“New and innovative prescription drugs have made a profound impact on the lives of millions, curing illnesses and lengthening and improving quality of life,” Glans said. “These advancements were made not through any government mandate but through the free market.”
Coercion vs. Competition
Edward Hudgins, research director at The Heartland Institute, contrasts Sanders’ plan with the approach the Trump administration has taken.
“Both President Donald Trump and Sen. Bernie Sanders have offered plans to reduce the costs of drugs,” Hudgins said. “The president’s ‘American Patients First’ blueprint was released in May 2018, and his efforts to deal with high drug prices have been a work in progress. Unlike Sanders’ plan, the president claims the best way to deal with high prices is ‘improved competition’ rather than more government planning, the preferred avenue for the socialist Sanders.
“Although the president’s plan attempts a more free-market approach, the reality is that the president faces a situation in this country where drug pricing is already a tangled mess of government regulations mixed with private-sector suppliers and insurance companies,” Hudgins said. “Price controls on drugs mandated from a federal level will never work as well as simply allowing the free market to price drugs through supply and demand. The best thing any plan to lower drug costs can do is get government completely out of the way.”
The big difference between the two plans is their endgames, says Hudgins, with Sanders aiming to socialize health care and Trump trying to increase access to drugs within a framework of market competition. Hudgins expects dire outcomes should Sanders win the day.
“Perhaps the most striking difference between the Sanders and Trump approaches to drug pricing is seen in their endgame visions,” Hudgins said. “Trump generally favors more patient choice and competition, even if the particulars of some of his proposals are open to question from a pro-market standpoint. Sanders is a strong advocate of single-provider socialism. That approach has run into serious problems in the countries under such systems. Closer to home, the horrors exposed in recent years in the Veterans Administration, a single-provider system that does a grave disservice to those who have served and in so many cases have put their lives on the line for their country, show the problems with Sanders’ approach. Sadly, many people put their lives on the line again when they have no choice but to seek medical care through the VA. Many who survived the battlefield have not survived VA hospital bureaucrats.
“Sanders’ single-provider approach would put us all at risk,” Hudgins said. “Maybe we would get a diminishing number of drugs at less cost, or even for ‘free,’ but the prices would be cold comfort because our overall health care will suffer.”
Sen. Bernie Sanders (I-VT): https://www.sanders.senate.gov
Rep. Ro Khanna (D-CA): https://khanna.house.gov